Noble Group shares slid yesterday, the first day of the trading week, after Fitch Ratings cut the embattled commodities trader's credit rating to a score indicating that a default is possible.
The company's stock dropped 4.7 per cent, ending the day at 50.5 Singapore cents.
Fitch slashed its rating late last Friday by two steps to CCC, its third downgrade since the middle of last month. Fitch says the rating indicates "substantial credit risk" and that "default is a real possibility".
The moves mark a reversal following a 63 per cent surge in Noble Group's shares last week, when the company said it was still in talks with potential investors after agreeing with lenders to extend its US$2 billion (S$2.8 billion) credit facility for four months.
The struggle to sustain the rally flags challenges for the company - in which Abu Dhabi fund Goldilocks Investment became a major holder last week - as it searches for a strategic investor to restore confidence following a collapse in its shares and bonds this year.
"The extension of Noble's US$2 billion borrowing base facilities by 120 days from June 20, 2017 does not provide evidence of medium-term funding stabilisation," Fitch said in its statement last Friday.
The uncertainty surrounding the outcome of the facility may constrain the company's flexibility in its trading operations, according to Fitch.
Fitch estimates that Noble had US$900 million of cash on its balance sheet at end-May, and should be able to cover the US$600 million drawn under the borrowing base facility.
It said the facility also gives Noble access to letters of credit, of which US$1 billion had been drawn.
"The letters of credit are key tools to provide credit enhancement to suppliers," said Fitch, adding that reduced access would diminish Noble's capacity to trade.
Noble Group did not respond to a request for comment yesterday on Fitch's downgrade. The company's 6.75 per cent bonds due in 2020 were at 37.7 US cents on the dollar, according to prices compiled by Bloomberg. They have fallen from 83.7 cents at the end of last year.
"We recognise Noble's effort to sell part of the group or its assets to aid in the restructuring of its business," Fitch said. "But visibility over the form or success of any transaction is low, given current market conditions."